The Beginner’s Guide to Lean Startup is your starting point to avoiding the biggest startup founder mistake — ever. Building something nobody wants.
“The movement that is transforming how new products are built and launched” — Eric Ries, the Lean Startup
It all started on a rainy fall day in September 2008.
The originator of the most radical product development method to date just hit publish. He wasn’t aware of what was to happen. A storm. A worldwide movement kickstarted. Practitioners would take his thoughts and changed the way entrepreneurs build and launch new products and services.
One post kick-started a movement that reached 20+ countries where 100+ events were hosted. Numerous conferences were organized. And more every day. Even Universities, government, and large corporations are starting to adopt the method. A handful of excellent follow-up books are based on that groundbreaking ‘hit publish’ that rainy, gray afternoon in 2008.
No entrepreneur, indeed NO entrepreneur, hasn’t heard of “pivoting” or “MVP”.
Can you imagine being responsible for starting something like this?
Eric was a student of Steve Blank, who pioneered the Lean Startup movement with his Customer Development concept. Steve wrote a popular book “4 Steps to Epiphany” that was based on his outstanding long career as a serial tech entrepreneur in Silicon Valley. Steve and Eric work together ever since.
The Lean Startup philosophy has not only spread globally like wildfire but has helped people to understand what it means to act as an entrepreneur.
Here I explain why, give a few examples and a case study and finally let practitioners speak how they use the philosophy.
Welcome to the Lean Startup World 🙂
The Lean Startup Concept in a Nutshell
Over the past years, a new methodology has entered the scene. It’s called the Lean Startup. And known for a better, quicker more iterative approach to building and launching products.
It replaces traditional concepts, such as the ‘waterfall’ product development.
Depending on how you define a project’s success, 75% to 90% of startups fail when launched traditionally. As opposed to a linear waterfall process, Lean Startup focuses on an iterative learning loop. The process involves initial market research, customer profiling to build an original version of the solution to get feedback and iteratively improving it.
Understanding the customer and his/her feedback are at the center. Entrepreneurs take their product ideas through the feedback loop several times until a customer is happy with the solution.
As a result, the Lean Startup concept is known to be an effective solution that meets the customer’s needs and reduces the high failure rate of new product launches.
P.S.: If you aren’t much of a reader, watch this video (58 min) about the concept ‘Lean Startup’ now or save it for later within your YouTube: Authors@Google: Eric Ries “The Lean Startup”.
The Lean Startup Concept in Detail
The Lean Startup philosophy is based on lean manufacturing. Lean manufacturing uses streamlined production principles that were developed in the 1980s by Japanese auto manufacturers.
It’s where the term Kanban comes from. Trello, one of my favorite productivity tools, uses a kanban board approach to help us manage our projects. I also use it on an individual level to keep an overview of all my tasks.
Traditionally, a kanban is used strategically to place small stockpiles of inventory throughout the assembly line as opposed to storing a full stock in a centralized warehouse. By shortening the distance to get materials, workers became much more productive and reduced significantly less waste.
Both philosophies — lean manufacturing and lean startup — aim to eliminate wasteful practices and increase value producing practices during the product development phase.
- Problem: We know what the customers want.
- Problem: We can accurately predict the future.
- Problem: Advancing the plan is progress.
Lean Startup approaches product or business ideas as a series of assumptions.
Rapid experiments help to validate assumptions based on customer’s feedback or actions in the market. Lean startup takes the scientific method and applies it to release product versions iteratively to get customers feedback.
It results in validated learning about what customers want.
And it answers the fundamental question of any startup: Have you built something people want?
Consequently, the lean startup concept helps startups to reduce their go-to-market time (some say by 40%) and thereby cut costs on a startup’s product launch.
Reducing cash spent on product launch means startup founders don’t need to waste their time with investors, creating bullshit plans of the future.
Unfortunately, most investors still think that a detailed business plan will solve the unsolvable problem of predicting the future!
Little More Context for Product Developers (aka entrepreneurs)
Check out the following presentation to see the difference between traditional (slow) approaches to developing new products and modern (agile) ones.
Until today, organizations have been using three methods to develop a product. All fit different purposes and have different goals.
Let’s quickly compare them to understand better why the Lean Startup method is so helpful for startups.
P.S.: Don’t try to understand the slides too much. I kept them in to give you some visuals, but I think they don’t do a good job describing it because they are too complex. Please ping me if you find better ones. I couldn’t! Sorry!
#1: Traditional product development (waterfall)
Traditionally, the problem and the solution were known. People tend to sit in their basement, don’t speak with anyone and one day come out with an epiphany.
It’s great for already proven stuff. Proven markets. Proven business model. Proven actions of competitors and potential market entrants. Everything seems proven and predictable.
The process is linear, a so-called stage gate model. It follows the following steps: requirements, specifications, design, implementation, verification, maintenance.
#2: Agile product development
Here, the problem is known, but the solution is unknown. The unit of progress is a line of working code. The key person is the product owner.
The process is somewhat linear and at certain points iterative. They still couldn’t get rid of the stage gate model. So they tried a hybrid of linear and iterative thinking. It follows the following steps: architectural spike, release planning, iteration, acceptance tests, small releases.
#3: Lean Startup product development
Here, the problem AND the solution are unknown. The unit of progress is validated learning about customers. The key person is the customer.
The process is purely iterative. Each iteration cycle has three steps: Build. Mmeasure. Learn. The goal of each cycle is to minimize the total time to go through this cycle.
The expected outcome is to test the business model guesses (within the nine elements of the business model canvas).
Lean Startup Principles
Eric Ries outlines four principles of the lean startup.
Let him explain his thoughts in this video series: How to Build a Lean Start-up
Probably, the most famous concept being part of the Lean Startup philosophy is the ‘build-measure-learn loop’.
Regarding product development, startup founders have only one goal: to minimize total time through the loop. Eric believes that each startup founder should answer the question: “For how many loops do I have cash in the bank”.
He doesn’t believe in determining your time to stay alive by your monthly cash burn rate because it highly depends on what you think you need to spend your money. For most entrepreneurs, it’s on unnecessary stuff. Most just overspend.
That’s why Eric advocates thinking in product iterations cycles. Because every cycle you can run through brings you close to a solution that can be built and successfully marketed because it is based on ACTUAL CUSTOMER FEEDBACK!
It’s all about learning in the early stages of a startup. Validated learning requires to move through the feedback loop as quickly and thoughtful as possible.
Graphics: At the core of the Lean Startup Methodology is the build-measure-learn feedback loop. — source —
If you want to learn more about the stages that startups go through, take a look at my article on this topic where I describe the Startup Path: Repeatable and Measurable.
Case Study: Dropbox
[YouTube video] Dropbox @ Startup Lessons Learned Conference 2010
- Dropbox made it to 4 million users in 18 months after launch without any advertising budget.
- When Dropbox started, there already existed lots of competitors, but their products were inferior and hardly known.
- Dropbox ignored most of the traditional marketing approaches and “best practices” like PR, partnerships and having a “real website”.
- Instead, they focussed on building an alpha version of their product idea which “worked” and made users happy.
- They saw that Google AdWords were ineffective because users weren’t actively looking for what they were building. Search engine marketing is only harvesting the demand that is already there!
- Instead, they encouraged their users to spread the word about Dropbox through incentive programs. They used a great referral program (similar to AirBnb or Paypal).
- In 30 days, their users sent 2.8 million direct invites because they believed so much in the product because it solved a pain in the ass problem!
Reality Check: Sounds too Easy to be True?
Here are some learnings from Dan Norris who built the app Informly which seemed like a very good idea when he tried to validate it. It still failed even though it had 4,000 free signups, but only 15 paying customers at $9 per month.
Key insights are:
- Beta signups are no proper validation. When people enter their email, it doesn’t mean that they’ll pay for your product.
- When people say they love your idea, it doesn’t mean that they’ll pay for it.
- Coverage in tech press doesn’t mean that your product is great and won’t bring you oceans of new users – when Informly was covered, zero paying customers followed.
- Targeted surveys don’t work. People are much more willing to tell you they would pay for a product than to pick their briefcases.
- The concept of MVPs is not as great as it sounds. Many people just don’t pay for crappy and unfinished pieces of software that are drafted in a few weeks. Dan notes: “Most of the SAAS entrepreneurs I know are slaving away for months if not years on their idea with low traction.“
- Dan’s final insight: Getting traction takes time in most cases. It’s bullshit to think that you can find a magical “product/market fit” in a few weeks and then simply go viral.
What are a few Misconceptions About the Lean Startup?
I believe we need to get rid of a huge misconception around the concept ‘Lean Startup’. It is essentially an agile product development method.
Wrongly so, most people use it interchangeably with starting a startup.
Building a product is just one part of it. Finding customers and assembling a team are other crucial things. Some argue even more important ones.
You know what sucks?
I talked to a lot of startup founders and startup team members. I saw them in action as a coach at Startupbootcamp and other accelerators.
Everyone has heard of the Lean Startup concept.
Most own the book. Some read.
BUT very few apply the principles continually.
It sucks to have a book sitting on your desk and screaming at you: “Pick me up!” Every day you enter the room and approach your desk, your guilt comes. “Fuck, I should read this … everyone talks about it. I should … but have no time, or ah fuck it … I would rather answer emails …”
“The Lean Startup Methodology is one of the most popular ways for startups to create products nowadays. Its iterative learning model lays out a logical way to progress how a product gets built.” – Anuj Adhiya
In my experience, it’s shocking that nearly no one practices it!
Other misconceptions about Lean Startup are:
- ‘Lean Startup’ is the panacea against company failure.
- ‘Lean’ means cheap (or having a low burn rate).
- ‘Lean’ means small.
- ‘Lean’ is a brand new, untested concept.
- ‘Startup’ means it’s for new Internet companies only.
- ‘Customer development’ is just a newspeak for feedback.
- ‘Customer development’ makes vision irrelevant & the concept boring.
- ‘Customer Development’ means that you create what customers want.
- ‘Minimal Viable Product’ (MVP) is a half-baked beta version.
- ‘Pivoting’ is changing your business model or product.
They are false. Don’t let other people make you believe their false thinking. Stand up and remember that Lean Startup …
- Lean Startup is a method that is about the speed of learning, not about cost.
- Lean Startup applies to all companies that face uncertainty about what customers want. It’s not only applicable to Web 2.0/internet/consumer software companies/startups.
- Lean Startup applies to any startup – either bootstrapped or venture-capital funded.
- Lean Startup is driven by a compelling vision. It’s rigorous about testing each element of this vision, not replacing vision with data or customer feedback.
“Lean Means That you Constantly Have to Remind Yourself That you Could be Wrong”
Some of the successful startups followed the Lean Startup philosophy religiously. One of them is Buffer as outlined in their great post: Idea to paying customers in 7 weeks.
When Joel Gascoigne built Buffer with his team, he recognized how easy it is to start lean, but how much harder it is to stay lean along the way. Staying lean is a real struggle.
“As an entrepreneur, you’re meant to be bullish about your opinion. But lean means that you constantly have to remind yourself that you could be wrong.”
It is in line with another founder’s experience. Shawn Zvinis, co-founder of Tab, says: “Once you get going, there’s no way you can sit down in a relaxed state of mind and think about the next test.”
Moreover, some people are wondering whether founders of lean startups are still entrepreneurs in the conventional sense, rather than empiricists who try to find a profitable niche.
Others question whether lean startups are capable of significant innovation.
“Lean provides a useful toolkit, but it can bias you towards the incremental rather than the transformational,” says Scott Nolan of the Founders Fund, a venture-capital firm that makes big technology bets, such as an investment in SpaceX, a space-transport company. Scott goes on: “You cannot simply iterate your way into orbit.”
Even Eric admits that his methodology has limitations. In his book, he also warns of “analysis paralysis”. It means that founders lose sight of the strategic forest for all the testing trees.
So What can be Your Take Away?
Lean Startup advocates the Build-Measure-Learn feedback loop for developing products in a lean way. Like most entrepreneurial thought leaders, Eric Ries is an engineer. He and others (ex. Paul Graham, Steve Blank) speak and write about startups but with an engineering mindset.
I think that is an issue that can be nicely explained by the Lean Startup philosophy.
The startup land has been dominated by domain experts that are engineers most of all. They can build prototypes themselves and don’t need to hire an agency or find a friend in the early beginnings of any project.
That’s a great advantage, and it’s the reason why the Lean Startup feedback loop starts with the build phase.
What might be true for engineers is false for other entrepreneurs, like me and potentially you without a technical background? I believe for us it’s wrong to start with the build phase.
I even believe it’s wrong for engineers to start with the build step.
Entrepreneurs should not spend any minute on building a prototype, also called MVP as a first step.
The very first step is to listen and to understand to discover something that you can solve for people or companies. Design Thinking and Customer Development are two great methods for this. You must develop a strong empathy for other people’s problems.
If you can’t, your project won’t succeed.
As a result, one of my early-stage startup advice is ‘scratch your own itch’.
By the way, that is how 37Signals has built several tremendously successful software products (all in bootstrap mode). Among them are Basecamp, a widely used project management tool, Highrise, contact management system, or Campfire for real-time team collaboration.
At the core, you aim to answer the WHY for any issue before going to the HOW, and the WHAT. People are inherently driven by purpose and cause.
When you communicate the WHY explicitly well, people will relate to your project. That’s how powerful brands like Apple or Nike are born.
Using the WHY, HOW and WHAT for the Lean Startup concept, we get three questions
- WHY = Learn: Why is the result of this test significant (or not)?
- HOW = Measure: How do we know that we got this result?”
- WHAT = Build: What’s that (minimum) thing we did that led to this result?
The Why, How, and What-based questions give you context and free you from having to understand the Lean Startup concept as something new.
And because you start with the outcome (or Why), it makes it much easier to understand what Build-Measure-Learn (or rather Learn-Measure-Build) means.
Even Eric Ries suggests starting with “what do you want to learn?”, then answer “what do you need to measure to learn?” and finally “what do you need to build to measure to learn?”.
By looking at the feedback loop in a reverse way, you get a better understanding and learning of how to get through the loop quicker.
Your goal is to arrive at a measurable outcome in the most efficient, lean and minimum way!
#EntrepreneurHack: Remember the following …
No business plan survives the first contact with a customer. Don’t create a plan. The value is in the planning.Understand your customers before you build anything. Think of it as the Lean Startup Cycle in Reverse.
Lean Startup Sources
- Official website: The Lean Startup
- Eric Ries official blog: Startup Lessons Learned
- Steve Blank: Why the Lean Start-Up Changes Everything
- Dan Norris: Is startup validation bullshit?
- Alistair Croll: Minimum Viable Feature analysis
- Free Wikipedia: The Lean Startup Wiki
- The Economist: Testing. Testing.
- StartupGeist: What is a Startup?
- StartupGeist: The Startup Economy – Why Startups create every NEW job
- StartupGeist: Startup Life – The Scary Truth No One tells YOU about
- Eric Ries: How to Build a Lean Start-up
- Authors@Google: Eric Ries “The Lean Startup”
- Eric Ries on The Lean Startup and Entrepreneurship
- Eric Ries explains The Pivot
- Eric Ries: “The Lean Startup” and the Golden Age of Entrepreneurship
- Stanford E-Corner: Eric Ries-Evangelizing for the Lean Startup
- How to Identify a Lean Startup by Ash Maurya
- Eric Ries presentations
- Steve Blank presentations (slides look horrible, but content is precious)
- Ash Maurya presentations (best-looking slides, MY FAVORITE)
- Course: The Lean LaunchPad (Youtube series here)
- Course: The Lean Startup
- Course: Build. Measure. Learn. Lean Startup SXSW 2012.
Where to meet Lean Startup practitioners
- Local meetups: Lean Startup Meetup Groups
- Free Wikipedia: The Lean Startup Wiki
- Largest online community: The Lean Startup Circle
- Regional Conferences
Lean Startup Glossary to remember — source link
- Lean Startup
- Minimum viable product (MVP)
- Pivot (Top 10 Ways Entrepreneurs Pivot a Lean Startup_
- Validated learning
- Product/Market Fit
- Business Model: A business model describes how a company creates, delivers and captures value.
- Business Model Canvas: A canvas helps to show a holistic version of a business model on one page. (video: Ash Maurya: Business Model Canvas vs. Lean Canvas)
- Lean Canvas: 1 Page Business Model for Startups
- Product Development
- Customer Development
The LEAN Series — Essential Books for Entrepreneurs and Innovators
- The Lean Startup by Eric Ries
- Running Lean by Ash Maurya
- Lean Analytics by Alistair Croll & Benjamin Yoskovitz
- UX for Lean Startups by Laura Klein
- Lean UX by Jeff Gothelf
- Lean UX Workshop by Jeff Gothelf
- Lean Enterprise by Jez Humble, Barry O’Reilly, Joanne Molesky
- Lean Branding by Laura Busche
- Lean Customer Development by Cindy Alvarez
Other recommended books
- Made to Stick by Chip Heath & Dan Heath:
- Hooked: How to Build Habit-Forming Products by Nir Eyal
- Influence: The Psychology of Persuasion by Robert B. Cialdini